ProAssurance Book Value Grows 17% in 3Q

On November 3, ProAssurance Corp. PRA reported 3Q10 operating EPS of $1.30 compared to $1.58 a year ago. PRA beat our estimate of $1.24 but fell short of the consensus estimate of $1.31. The operating result was due to better-than-expected reserve development of $33.4 million, or $0.80 per share. In addition, PRA repurchased 975,000 shares in 3Q10 for total of $55 million. Top-line growth was challenged due to the current pricing environment and declining investment yields on fixed-income securities. Book value as of 9/30/10 was $58.90, a 17% increase over a year ago and above our estimate of $57.55. Our estimates for 2011 are unchanged. Wunderlich reiterates its Buy rating and $64 price target. Wunderlich's 2011 EPS estimate of $5.25 is unchanged. We expect book value to increase 14% in 2010 to $60.15 and 9% in 2011 to $65.40. Its estimates of EPS and book value could prove to be conservative depending on the level of favorable reserve development reported in 4Q10. Over the past three years the 4Q favorable reserves have been significantly higher than the remainder of the year. Wunderlich has a Buy rating and $64 PT on PRA PRA closed Thursday at $60.23